While company officials with Service Properties Trust expect business travel demand to increase and labor pressures to ease, executives said they're still working to get many of their recently converted hotels to Sonesta brands — from primarily IHG Hotels & Resorts and Marriott International brands — and pre-conversion performance levels.
Speaking during the company's third-quarter earnings call, President and Chief Investment Officer Todd Hargreaves said the way the math works out for Sonesta properties due to Service Properties' one-third ownership stake in the hotel brand company, breaking even on previous performance amounts to bottom-line improvement for the real estate investment trust.
"We now have several quarters of data post-conversion of the 200 hotels that we converted to the Sonesta brand, so I think every quarter we're getting a better idea of how close we can get to the previous operators' performance," he said.
Hargreaves said performance has varied based on what segment the hotels sit in, with the highest-rated hotels — primarily converted to Royal Sonesta — faring the best along with other full-service properties.
The company's select-service hotels have been slower to rebound.
"We expect to get back close to where the previous operator was, but we acknowledge that may not occur for those specific hotels," he said.
Hargreaves said Service Properties needs to do a better job quantifying to investors how much of a financial benefit the Sonesta relationship is for those properties, even if they continue to lag in broad revenue metrics.
"We really see a lot of upside in that 34% ownership interest, especially on the franchising side of the business, which we really think will grow over the next few years having the ability to benefit from those future royalty fee streams," he said.
The REIT continued its trend of selling off non-core assets during the quarter, completing the sale of five properties with 603 keys for $29.7 million on Sept. 30 then selling another hotel with 120 rooms on Nov. 3 for $6 million.
Also in September, the company announced an agreement to sell its 16 remaining Marriott-branded hotels as a portfolio for an aggregate price of $137.3 million, along with an additional four Sonesta-branded hotels for $25.2 million.
Asked if the company will be spurred to sell more properties into 2023 due to upcoming debt maturities, Treasurer and Chief Financial Officer Brian Donley said executives expect to continue to sell, but they should also be able to refinance maturities as needed.
"Whether that's with unsecured bonds or some sort of secured financing or bank debt remains to be seen, but we feel pretty good that even despite the market backdrop and issues with interest rates whatever we execute will be the best cost options for us [and won't] increase our cost of capital radically," he said.
Third-Quarter Performance
Service Properties' portfolio of 240 hotels recorded revenue per available room of $92.29 for the third quarter, a year-over-year increase of 29.6%, primarily driven by a 16.6% increase in average daily rate to $140.05.
Overall, the company recorded revenues of $498.3 million in the quarter and $1.4 billion year to date. The real estate investment trust had a net income of $7.5 million for the quarter, after recording a $59.7 million net loss in the third quarter of 2021. The company has posted a net loss of $101 million through the first three quarters of 2022.
As of press time, the company's stock was trading at $7.61 per share, down 13.5% year to date. The Nasdaq composite was down 33.5% for the same period.